Microinsurance to Yield P2.5B, DoF says

Business World, Economy
BY ALEXIS DOUGLAS B. ROMERO, Reporter
January 29, 2010

PREMIUMS TO BE RAISED from the sale of just one microinsurance product can hit at least P2.5 billion per year if all the beneficiaries of the government’s microfinance programs were covered, the Finance department said.

Joselito S. Almario, deputy executive director of the Finance department’s National Credit Council, said the computation is based on a "conservative" assumption of a P1 per day premium for seven million clients.

"At P1 per day of premium covering just the risk protection needs of seven million microfinance clients, annual business potential will amount to P2.5 billion," he told BusinessWorld in a telephone interview. "It is just a conservative figure. It is based on just one microinsurance product. It does not include other potential clients such as those in the informal sector and those who are self-employed. It is also based on a daily premium of P1."

Mr. Almario said the assumption can apply to the sale of any microinsurance product such as health, life, or nonlife.

The Finance official noted that the amount of premium contribution per microinsurance policy cannot exceed P19 per day to make them affordable to the poorest sectors.

"It can be higher if the premium collected by the insurance provider is more than P1 per day. The potential of the microinsurance business is big," he said.

Mr. Almario said these premium contributions are on top of the earnings that a firm can generate from their investments.

"When they invest the money they collected, they [companies who will offer microinsurance] can earn further," he said.

Finance Undersecretary Gil S. Beltran, who is also executive director of the National Credit Council, believes that the microinsurance policies would draw support even from those in the low-income brackets.

"We all need the security. This will prod them [poor] to avail of the products. This will reduce the risk on their livelihood," he said in an interview.

"With risk protection, we can make the poor participate more actively in the economy."

The government defines microinsurance as a product that "meets the needs of the disadvantaged for risk protection and relief against distress or misfortune."

Finance officials have said that the potential beneficiaries of the low-priced insurance schemes can be as high as 42 million. This was based on the assumption that each of the seven million microfinance clients belong to a family of six.

The government is set to launch today the national strategy and the regulatory framework for microinsurance, which will formally mark the beginning of the industry.

The national strategy for microinsurance states the objective, the roles of the various stakeholders and the strategies to be implemented in improving access to insurance of the poor, the self-employed and their families. It also provides ways to encourage those who are providing informal insurance and insurance-like activities to register and to comply with existing regulations set by the government.

Under the strategy framework, the government and other stakeholders will provide an appropriate policy and regulatory framework, monitor informal insurance schemes and encourage them to register their operations, and institutionalize financial literacy.

The regulatory framework, meanwhile, enumerates the requirements and standards that facilitate the sound delivery of microinsurance products and services by the private sector.

It states that microinsurance products can only be provided by entities registered and licensed by appropriate government regulatory bodies such as commercial life insurance companies, commercial nonlife insurance companies, mutual benefit associations, cooperative insurance societies, insurance or service cooperatives, pre-need companies and health maintenance organizations.

Mr. Beltran said other microinsurance regulations will be finalized within the year.

The regulatory and strategic frameworks were created by technical working groups composed of representatives from the Finance Department, the Insurance Commission, Bangko Sentral ng Pilipinas, Securities and Exchange Commission, Cooperative Development Authority, National Anti-Poverty Commission ,and Philippine Health Insurance Corp. It was approved by a steering committee last November after a series of consultations held nationwide.

The Asian Development Bank and the German Technical Cooperation have agreed to help the government develop the microinsurance market in the Philippines.